Enron's fall finds FERC toying with cost-based rates. But let's temper the nostalgia.
William A. Mogel is a partner in the law firm Squire, Sanders & Dempsey, in Washington, D.C. He is the editor-in-chief of the Energy Law Journal.
Enron may not be dead, but its death rattle is certainly being heard loud and clear on Wall Street, Capitol Hill, and in Houston and beyond. If Enron ever was king, will the new king be a scion that also is an aggressive advocate of deregulation? Or, will it be an aged consort, who yearns to return to the "just and reasonable" standard for rate regulation?1 The answer may be with the Federal Energy Regulatory Commission (FERC), which in two pre-Thanksgiving companion orders,2 indicated a strong preference for crowning the just and reasonable standard.
Before commenting on whether just and reasonable rates are an appropriate substitute for market-based rates for merchant plants, it should be noted that "Enron ... created an enormous legacy of good ideas that have enduring value." Those ideas included: "de-integration of power contracts," "minimization of transaction costs and frictions," "exploiting the optionality in networks," "rigorous risk assessment" and a "culture of urgency, innovation, and high expectations."3 On the other hand, even in these early days of Enron's Chapter 11 bankruptcy filing, it is clear that the unique business model of Enron-asset-light, trading operations that included numerous dissimilar commodities, lack of accounting transparency and conflicts of interest-were the Four Horsemen of the Apocalypse which brought its downfall.